|
Gas competition in Lower 48, Asia-Pacific ExxonMobil, OFC’s Larry Persily, describe future market needs for natural gas, competition in Lower 48, globally to supply need Kristen Nelson Petroleum News
The good news, the Resource Development Council’s annual conference heard Nov. 16 and 17, is that there is growing demand for natural gas, both in the Lower 48 and globally.
The bad news, said both Steve Kirchhoff, vice president of ExxonMobil Gas and Power Marketing Co., and Larry Persily, federal coordinator, Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, is that there is much more supply than was expected a few years ago, and competition to meet the market demand.
Rapid changes Kirchhoff, who said he looks after ExxonMobil’s gas marketing for the Americas, noted that just a few years ago, “the buyers I was talking to in North America were worried about security of supply,” about where natural gas would come from.
Prices were moving upward and the solution appeared to be “large-scale, cost-efficient” liquefied natural gas imports.
That was the backdrop, he said, for planning for large-scale pipelines from both the Alaska and Canadian Arctic.
“But as has been the case in the gas industry a lot of times in my career,” Kirchhoff said, “change has happened at a very, very rapid pace.”
He said that a few years ago it would have been hard to imagine that two technologies that have been around a long time, hydraulic fracturing and horizontal drilling, would be put together in the Barnett shale and open a new generation of natural gas production in the United States.
Those technologies applied to unconventional gas production have now been “proven and perfected, not just once but multiple times in succession after succession after succession of plays in North America,” Kirchhoff said.
The International Energy Agency’s most recent assessment of worldwide natural gas is some 28,600 trillion cubic feet, some 250 years of consumption, vs. previous estimates of 60 years of consumption, he said.
In the U.S. the natural gas resource base is now enough to meet more than 100 years of demand.
“It’s probably fair to say that the assessments that the IEA has today are speculative, not certain,” Kirchhoff said, but the assessment of the shale resource in the U.S. “is well grounded and it’s growing stronger every day.”
Assessments from elsewhere in world are based on limited tests, on geoscience evaluation and on analogues to the U.S., he said.
“Standing here in Alaska, it might be really tempting to dismiss the potential around the globe as speculative, but I would say our history in the U.S. argues to the contrary,” Kirchhoff said.
Demand growth Natural gas demand is expected to have the fastest growth in the 2005-30 period of any energy source, he said. The demand for natural gas is expected to almost triple in Asia over that period and almost double in the Middle East; growth will be substantial even in the U.S. and Europe, driven by power use, Kirchhoff said.
So far, performance is holding up well against the forecast, he said.
In the U.S. natural gas has been growing in its share of the power market, with competitive prices leading to fuel switching over the last three years.
“Gas is also the fuel of choice for the majority of new-built generation projects that have been announced in the last few years” in the U.S., Kirchhoff said.
And the growing supply of natural gas has given U.S. utilities, and public utility commissions, more confidence in the supply of natural gas available.
And by 2030, more than half of natural gas demand in the U.S. will be met by unconventional sources.
Meeting the demand in Asia Local supply will continue at a strong pace in Asia as demand grows in that region, “but it’s not enough to fully meet demand and as a result imports are going to be required for more than a third of their region’s demand in 2030,” he said, mostly as LNG sourced from areas in the region like Australia, Papua New Guinea and Indonesia.
But Asian utilities will look for diversity of supply and there will be competition to meet the region’s growing needs.
“Now the wild card in this outlook, for both Asia and Europe,” Kirchhoff said, “… is what happens to the unconventional development.”
While there is potential for unconventional development, in Europe it has moved at a slower pace than in the U.S.
“I would say in Asia developments are in a much, much earlier stage,” Kirchhoff said.
Opportunity for Alaska “Alaska North Slope gas is competing in a growing and increasingly global marketplace,” he said. Growing demand will generate strong incentives to bring resources to market, resulting “in stiff competition for delivering economic projects.”
While ExxonMobil believes “Alaska North Slope gas can play a role in meeting the global need for energy … it’s essential that the key stakeholders are aligned,” Kirchhoff said.
He said Gov. Sean Parnell has been reaching out to industry, and “has recognized that predictable and durable fiscal terms are a prerequisite for developers in prioritizing the financial and human resources required to bring a project of this scale to fruition.”
Kirchhoff said that ExxonMobil also sees “benefit in building upon the foundation laid within the framework of the Alaska Pipeline Project and AGIA (Alaska Gasline Inducement Act), as we continue to work forward.”
Chances for Lower 48 line Persily addressed the issue of whether there is hope for an interstate natural gas pipeline from the North Slope.
While the North American market has problems — the supply of unconventional gas currently available — the Asian market also has problems, he said.
“There’s competition,” Persily said, and because someone may be paying $16 per thousand cubic feet on the spot market for LNG today, there’s no guarantee that they will pay that price for Alaska gas for the next 30 years.
He compared the problem in Alaska today with a political nominating convention: “Everyone in Alaska has their ‘favorite son’ for getting Alaska North Slope gas to market. … No one’s going to compromise; no one will walk away from their favorite son; no one is willing to negotiate; no one wins.
“It’s a stalemate,” Persily said.
He listed 10 proposals to get North Slope natural gas to market: AGIA, Asia-Pacific markets, All-Alaska line, Valdez terminal, Nikiski terminal, Alaska Natural Gas Development Authority, trucking gas to Fairbanks, Energia Cura, stub-to-hub and Alaska Gasline Port Authority.
Alaskans need to get behind one project, he said.
“Producers are used to dealing with steel prices, market prices, volatility.
“Alaska politics is squirrely, let’s face it,” he said: “Great theater; I’m not sure how productive it is.”
Cutting a deal Persily said he thinks Alaskans are starting to warm up to the idea that to commercialize North Slope gas they will have to cut a deal.
He said “Alaskans need to measure the success of this project not in Alaska tax dollars, but in the value of jobs, the affordable gas for Alaskans and the investment it’s going to bring to Alaska, for gas and oil.”
“Alaskans need to realize that we need a gas line: we need it for the jobs, for the energy, we need it for the development it’s going to bring to the state,” Persily said.
In 2005 to 2008, we thought that gas was worth “$14 an mcf,” he said. “Well, it isn’t. You’re not going to get those kinds of prices.”
“You want to get into the market, come up with a fiscal structure that prices the commodity so that you can get into the market. And then over the next 50 years there will be good times in the market and you will profit,” Persily said.
“But if you wait for that day when the market is at its peak, you’re going to be too late.”
| 